Economic Implications of Historically Evolved Self-Efficacy: Agent-Based Modeling and Empirical Evidence from Rural Ghana

We argue that self-efficacy is important for economic performance. Self-efficacy is at the psychological core of agency and entrepreneurship. It enables people to learn, and change and act to better their livelihood. In an agent-based model we show how different levels of individual self-efficacy can evolve as a reaction to environmental demands and rewards to human intervention. The basic idea is that people learn how to best survive in their specific environment and teach this knowledge to their children. Because this cultural heritage only adapts very slowly to the current environment, people might have self-efficacy levels that better fit to the context of their ancestors than to their own. With empirical data from Ghana, we defind that different-levels of self-efficacy have developed from different historic environmental conditions and directly influence today´s household incomes, controlling for observable incentives and constraints. Specifically, the historic returns on agricultural investments are found to have shaped the cultural evolution of self-efficacy. In contrast, current returns on investment explain far less variation in self-efficacy. We find that this cultural trait significantly affects income levels through shaping the farmers’ investment behavior. Regarding the measurement of self-efficacy, we find self-efficacy to be a process- rather than a goal-oriented belief and it is mainly culturally transmitted.